PhilippineAirlines: PAL needs restructuring, spin off to survive!

Philippine Airlines (PAL) told Congress today (November 10, 2010) that its corporate restructuring and spin-off programs are necessary to ensure the flag carrier’s continued survival in a cut-throat airline industry buffeted by massive losses in the last two years.

Speaking before the House Committee on Labor, PAL President and CEO Jaime Bautista maintained that the recent decision of the Department of Labor and Employment (DOLE) affirming PAL management’s prerogative to restructure its organization “is based on solid legal grounds.” It also provides a generous separation package to about 2,600 affected workers.

He said the DOLE decision allows PAL to spin-off or sell three of its non-core units such as in-flight catering, airport services and call center reservations and contract the same to third party service providers. The agency also ruled that the termination of affected employees as a result of the spin off is in accordance with law, and that PAL is not liable for any unfair labor practice as a result of said termination.

Bautista said Labor Secretary Rosalinda Baldoz based her October 29, 2010 Order on pertinent provisions of the Labor Code, Civil Code, past rulings of the National Labor Relations Commission (NLRC), Supreme Court decisions and the current collective bargaining agreement (CBA) between PAL and the PAL Employees Association (PALEA).

He said complaints by PALEA officers and other militant groups that the DOLE ruling trampled on workers’ rights have no factual or legal justification. He stressed that PAL’s string of massive losses in the last two years amounting to US$312-million or almost P15-billion necessitated the spin-off to ensure PAL’s continued survival. He said the sale of the three non-core units was only done as a last resort after 14 major cost-cutting measures proved inadequate to guarantee PAL’s continued operations. He also stressed that hiring third party service providers after PAL decided to close down its non-core units is not ‘contractualization’ as the union claims.

“DOLE upheld not only once, but twice, PAL’s position that the planned spin-off ‘is a matter of sound business judgment… in order to maintain the survival and sound financial health of the company in a globally competitive airline industry’," Bautista said.

He explained that PAL’s spin-off move was spurred by the need to restructure and reduce costs to be sustainably viable. This, he said, were done by many airlines worldwide which are now experiencing the current rebound as reported by the International Air Transport Association.

Had DOLE ruled against PAL’s restructing plan, Bautista said the airline and all other businesses in the Philippines would be placed in a very difficult situation. “Local and foreign investors would shy away from the country if businesses are barred from exercising their right to control and manage the course and direction of their respective enterprises,” he told lawmakers.

Meanwhile, Bautista begged off from discussing in detail the issues related to alleged age and gender discrimination, maternity benefits and additional pay for PAL’s flight attendants, stressing that the same are currently pending litigation before the labor department and Commission on Human Rights.

The PAL spin-off plan as approved by DOLE was estimated to cost the airline some P2.5-billion broken down as follows: workers’ separation pay equivalent to 125% of their monthly salary for every year of service; a one-time cash gratuity of P50,000 per worker; commutation of 100% of their vacation and sick leave credits to cash; free plane tickets depending on years of service; one year extension of hospitalization benefits; and employment with the third party service providers with guaranteed payment for one year of whatever salary is granted by their new employers.- Philippine Airlines.